Making a credit card feel like cash
Several years ago, when my oldest daughter was four years old, I told her that we could not make a particular purchase because I did not have enough money. She was disappointed, but undeterred she sung out in her little voice, “well, just put it on the card . . .” After the conversation that ensued, I realized that she – at no fault of her own – had not made a connection between credit card purchases and cash purchases. To her, paying with cash was a completely different transaction than paying with plastic. It is obvious why it would seem this way to a young child. She has no awareness of the fact that my paycheck is directly deposited into my back account, that we spend that money via a credit or debit card and then pay it back with an electronic funds transfer or electronic bill. Cash transactions are pretty rare in our household.
Most people my age probably remember seeing our parents carry out cash transactions on a regular – or even exclusive – basis. I used to watch my dad stop the gas pump at $10.00 to the penny and then have him hand me a 10 dollar bill to run into the gas station. I watched my parents pay cash for everything from groceries, clothing, furniture and even utility bills. On occasion, they used checks, but I do not think they had a credit card until I was in high school. And when I was finally old enough to handle my own money, counting out nickels at a rummage sale in order to buy a matchbox car helped to teach the value of a dollar.
This is not the experience of my children’s generation or even the generation who is quite a bit older than her. We live in a time when it is possible to limit one’s concept of money to only how it is represented by credit cards, debit cards, gift cards and paying for things with the click of a mouse. A cashless economy can make it seem as if money is not a concrete substance, as if it is as plentiful to dirt or water or air with no real consequence for wasting a bit of it now and then.
If we are not careful, money that seems as if it comes out of the air will be spent as if it grows on trees because, just as my daughter noted – using plastic does not feel like spending money. Even for those of us who have lived in a cash-based economy, the credit card becomes a painless tool for acquiring stuff. And this painless purchasing brings to mind the proverbial metaphor of the boiling frog.
As I mentioned last week, one solution is to completely cut out the use of credit – but this solution is about as useful as advocating for starvation as a way to lose weight. While a credit card fast can be a useful tool, cutting up and cutting out credit cards permanently is not practical in the long run. Credit cards are a reality of our world – no one (except those riding a scooter) can fill up a gas tank with a 10 or 20 dollar bill. Nowadays, it takes $60 to $70 to fill up the tank of our family vehicle and carrying that much cash on a daily basis is not going to happen.
Furthermore, credit cards are essential for so many necessities of life: emergencies, while traveling, car rental, airline purchases and more. Credit cards are great for keeping track of spending, they create a record of purchases and in many cases, provide rewards for purchases in a way that cash never could. One of the perks of credit cards that I have found especially useful is 0% APR balance transfers.Plastic also provides a way for company employees to make purchases on behalf of their company without the inconvenience of checks or the moral hazards of cash.
I don’t think we will ever get away from using credit . . . there might still be some people out there who live “cash-only” lives . . . But I am not sure that I have run across one in quite some time.
The goal is to change our perspective: to make spending with a credit card just as traumatic as taking a bill out of one’s purse or wallet, to make paying credit card interest or late fees to feel just as uncomfortable as applying a lighter to a wad of cash. In order to get a handle on credit card we must understand that using a credit card results in real money coming out of our pockets.
Accomplishing that goal is different for a lot of people, but here are just a few tricks that can help:
1. Limit credit card usage to only a few essential budget categories that remain relatively constant from month to month such as gas and groceries. For entertainment, out to eat and clothing, cash must be used – or else you cannot make those purchases.
2. Every time you start to use your credit card to pay for something, you MUST text your spouse or someone else who can provide frugal peer pressure if possible.
3. Every month, go through your credit card statement and attempt to reconcile every transaction to a budget category. In most cases, you likely have purchases that are outside of or in excess of a particular budget line item. Resolve to never let it happen.
4. Pay off your credit card balance in full every month. If you cannot do so in a particular month, you must place your credit card in a bowl of water and put it in the freezer for a week or month or until the balance is zero.
5. Every time you go to use your credit card, you must do 25 push-ups.
There are other ways . . . figure out something that works for you and commit to it. It is especially important that we teach our children to use money responsibly, even though our money does not really look or feel like money any more. Money clips no longer hold cash and new technology is going to make spending money even more easier than using plastic, therefore, if you struggle with your finances, any habit that you can institute to impede or inconvenience swiping is going to be a important skill.